Bad credit loan is a general term that could apply to several different types of lending. The only thing you know for sure when you see that term is that the loan in question is designed for people with a low credit score.
Payday loans and car title loans are two traditional types of the bad credit loan. They have been around for a few decades, and people for the most part understand how they work. Payday lenders allow you to borrow against your next paycheck, and title lenders let you use your car as collateral, so neither cares about what kind of credit you have.
But there is a new kind of bad credit loan on the market. It is rapidly making the other kinds obsolete. It’s called an installment loan. It takes many of the features offered by bank loans and makes them available to the rest of us.
Rebirth of the Bad Credit Loan
In the old days – the bad days – if you didn’t have a good credit score and you needed to borrow money you were in a tough spot. Bad credit lenders charge much higher interest than banks, and some of them have some pretty suspect business practices.
These loans tend to be open-ended, meaning you can pay on them for years and still never pay them off. In this way, they weren’t much different than a credit card, itself just a complicated bad credit loan.
Installment loans change all of that. With an installment loan you have a fixed number of payments. You have a fixed rate of interest. You know when every payment will be due, and how much it will be. And you learn all of this before you agree to the loan!
With this now available, there is no reason to use the “revolving debt” style of bad credit loan. Installment loans offer you the reliability and structure of a bank loan, without all the red tape. You will not risk being locked into the cycle of debt, you will have a clear (and fair) path to repayment.